The Indian startup ecosystem is undergoing a significant transformation. There was a time when new-age tech companies entered the market with massive valuations and large IPO sizes. However, this trend has changed in recent months. Companies are now making their listing plans more realistic and balanced. This shift is not merely due to market volatility; it is also the result of changing investor expectations and a growing focus on profitability.
In this article, let us understand why new-age companies are shrinking their IPO sizes and cutting their valuations.
What’s Happening?
A clear strategic shift is visible among new-age companies in the Indian stock market. Industry players such as Amagi Labs, Shadowfax, Pine Labs, and Fractal have reduced their IPO sizes and accepted lower valuations. The primary reason is the changing stance of investors. Public market participants are now prioritising profitability, operating leverage, and visibility of cash flows over aggressive growth.
Although IPOs worth around Rs 50,000 crore may hit the market in 2026, significantly higher than last year’s Rs 35,000 crore, companies remain cautious about pricing. Instead of demanding steep premiums, they are setting more realistic benchmarks. The objective is to ensure post-listing stability and attract long-term retail participation.
New Investor Perspective and Valuation Pressure
Given the relatively weak market conditions and increasing selectivity among institutional investors, companies are approaching pricing decisions with greater care. The focus is on ensuring adequate demand for shares and maintaining price stability after listing. Reasonable valuations are now being preferred over aggressive projections.
This shift is creating a ripple effect. Recent listings are serving as valuation benchmarks for upcoming large IPOs. For potential public issues from companies such as PhonePe, Zepto, Oyo, and Infra.Market, investor scrutiny is becoming more stringent.
Performance of Listed Companies and Market Sentiment
An analysis of listed new-age tech companies shows that the market cap-to-revenue ratio is being closely tracked. Companies such as Zomato, Nykaa, and Policybazaar indicate that the market is rewarding businesses that consistently reduce losses while sustaining revenue growth. Data suggests that fluctuations in the market capitalisation of listed tech firms directly influence the pricing of new IPOs.
For instance, when shares of large listed tech companies witness a sell-off, valuation benchmarks for upcoming IPOs tend to decline. Investors have largely moved away from the ‘growth at any cost’ model. The emphasis is now on sustainable and disciplined growth.
What Does This Mean for Investors?
From an investor’s perspective, smaller IPO sizes and moderated valuations are encouraging signs. They provide a better margin of safety. When companies enter the market at reasonable valuations, there is greater potential for post-listing gains. In several past IPO cycles, investors faced losses due to overpricing. The current shift in strategy reduces that risk.
Additionally, companies going public at a relatively earlier stage offer investors an opportunity to participate in their growth journey. There is also growing confidence that businesses are placing greater emphasis on transparency and corporate governance. However, investors should avoid being driven solely by IPO enthusiasm and instead conduct thorough due diligence on fundamentals, revenue models, and the path to profitability.
What’s Next?
The IPO momentum seen in 2025 is not just a short-term surge but reflects a rebalancing of the market. Startups are approaching public markets with stronger economic foundations and a more mature ecosystem. Lessons from previous IPO cycles have made valuation discipline and transparency essential. Investors are increasingly demanding viable business models rather than ambitious projections.
The year 2026 could mark an important phase for India’s startup ecosystem, as these companies integrate more deeply into the mainstream economy. Reports indicate that nearly 200 companies have lined up to raise around Rs 2.65 lakh crore with regulatory approval. The pipeline spans sectors such as fintech, e-commerce, and telecom, signalling that the next phase of growth will unfold with greater public accountability and investor participation.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
